Why I Bought Facebook IPO Shares Today



Facebook IPO Shares

In a dramatic triumph of hope over experience, I bought into the Facebook IPO hype today.

I just got off the phone with my broker at Morgan Stanley and placed an order for 1000 shares of Facebook.  (Morgan Stanley is one of the major underwriters of the Facebook IPO, and if you’re a client of theirs, you can actually place an order to stock at the IPO price before the company goes public tomorrow.)

It’s a pretty big investment for me and might come as a surprise to some, given that I recently published research on Tuesday morning that basically concludes Facebook advertising is awful. The research was picked up early on by Jim Edwards at Business Insider, and John Letzing at the Wall Street Journal, and Laurie Sullivan at MediaPost.

As if to validate the research, a mere 6 hours later, the Wall Street Journal announced that GM was dumping all advertising on Facebook, and our research – seen as a possible explanation for GM’s move – got picked up by Mashable, ABC, CBS, Fox Business, PC Mag, PC World, the Washington Post, USA Today, AFP, CNN, The Register, Fast Company, The Economist, Forbes, etc., etc.

So why is this internet marketer sinking up to $35k+ (depends on price and final allocation) of his own money into what he views as a terrible internet advertising venue? Here’s why:

  1. Facebook brought in $4 billion last year. In spite of our research showing that Facebook ads leave a lot to be desired – dopey ad formats, hopeless targeting options, no ads at all on their mobile platform and questionable ROI – the flip side is they still pulled in $4B last year. Imagine if they actually figured out how to monetize their audience! This may just be a matter of rolling out more engaging ad formats, helping advertisers better target to people who are likely to buy what they’re selling, and offering more support for advertisers.
  2. Or they could just give up entirely on ads. GM is dumping $10M in Facebook advertising, but will still invest millions growing their Facebook fan page, which is currently free for advertisers. (The money is spent mostly on content creation efforts and managing engagement.) The current model is that Facebook is giving that very valuable platform away for free, and charging for ads that nobody clicks on. They may be better off switching that around.
  3. Or they could charge the users. Facebook could charge for premium features, similar to LinkedIn. Heck, why not? If they charged users $3 a month for premium features, they’d be a $33 billion dollar company. Is it possible? Given that I spend about $10 a month buying “bombs” for Draw Something (a popular mobile game), I think that’s definitely possible.
  4. The people at FB are no dummies. Yes, their ads currently suck by any objective measure, but it’s always been a question of will. I think that the pressures of being a publicly traded company will result in them having to focus on revenues, and I’m confident that they will figure it out. Key to fixing their horrible ad relevancy is that they need to support remarketing – the ability for advertisers to tag their website users with a cookie – so that advertisers can continue the conversation, and engage with prospects after they leave their website and then go spend 20 minutes a day on Facebook. Currently, Facebook advertisers can only really market to people who are already their fans. Remarketing would let them market to people who are on the fence, those potential fans who are interested but maybe haven’t converted yet.
  5. 1 trillion page views per month. Facebook got an A+ in our study for advertiser reach. Even if they haven’t quite figured out how to monetize their insanely huge and active user base yet, having that captive audience is a powerful thing. It’ll be exciting to see what they do with  it.

So yes. I bought into the Facebook IPO hype today – even though a few months ago I was telling everyone at the office not to. But I’m not buying Facebook stock for the company it is; I’m buying it for the company that I, as both an internet marketer and a Facebook user, want it to become.

P.S. Earlier this week I neglected to thank two people who offered their valuable advice to make our infographic better – Gab Goldenberg and Tom Demers. Thanks for your time and insight.


Read the Surprising Follow-up Story: Why I dumped my Facebook IPO Shares at the Open Today

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Jason Nelson
May 18, 2012

Good post  Larry.  Interesting to hear some different perspectives on the company's value after all the negativity about Facebook as an advertising platform in recent days.  

Andreas Moser
May 18, 2012

Big mistake.Here are 10 more reasons why you should NOT buy Facebook shares: http://andreasmoser.wordpress.com/2012/05/18/dont-buy-facebook-shares/

Feb 24, 2014

You turned out to be an idiot. Facebook is now over $70 a share!

Tom Demers
May 18, 2012

Thanks for the shout out Larry! Also you forgot reason #6: "So he can double his money in two weeks by dumping the stock when it jumps to $70+" :)

jonny shitstorm
May 19, 2012

congratulations. u just made 230 bucks. for 1 day only.get out of this piece o poop monday morning.the rest of us are gonna be shortin this one so hard its gonna make myspastic look like the good ol days.easy short.no productgovernment sponsored data mining....not popular with the kids last time ichecked.no fundamentals. 100 times earnings. fickle markettotal no brainer.take the 35230 andSHORT!!!!!!!!!!!!U HEARD IT FIRST HEREPRICE TARGET14 BUCKSRECOGNIZE A PONZI WHEN YAA SEE IT. ITS OLD NEWS FOR US RUTHLESS DAYTRADERS!!PSU CAN FORGET ZYNGA N ALL.

Jamie Hansen
May 19, 2012

I still don't think that GM pulling their ads will make any difference to Facebook.  A big part of advertising is exposure over the long run, even if it is subtle, which is what many online advertisers are shooting for

Rob Fountain
May 21, 2012

Good article.  I think every trader from here to Calcutta has dropped their 10cents worth on what a terribleinvestment Facebook will be.  What experience do most of these people have of running a business? Zero! Jack sh*t!Point 1 is entirely correct. Once they figure out the monetization, Facebook is going to kill it.  Proximity marketing is still to come.   

jonny shitstorm
May 22, 2012

yeah rightim a 2bit daytraderand im now looking at 1st DAYS REAL TRADING AT 34. THATS 11 PERCENT DOWN IN A DAY.still feeling smart?our buddy is down like 4k in a day.contact me for some real trading advice.only suckers and idiots bought this.which will become even more apparent in a few monthstarget price 14-18.it might be added that this was on a day which saw a nice fat rally for nearly everyone else on monday.you better watch the price like hawks on a sell day like we saw on friday.IT HAS NO PRODUCT!!!!!!!!!!!!!!!!!!!!!!!!!DO THE MATHSnice to see zynga flying high....NOT!!!!you can forget that company.they are dust.any effort at monetization will lead, ironically, to lower revenuesexactly like every other sad assed social network for sad acts with little or no real lives.SHORT SHORT SHORT SHORT SHORTyou are not likely to see a return on this. ever. i predict this stock will never regain its highpsi made a absolute ton of money yesterday.38 down to a low of 32!!!! i sold at 32.i cant say i much i made.its truly disgusting really. shouldnt be legal.now i must go. i have to open a sad lttle day trading bet on oil futures. for anyone who wants some friendly advice on how to really make a buck. mail me.

jonny shitstorm
May 22, 2012

speak to some 17 year olds.it all becomes much clearer then.not one of these kids is going to cough up money to use this site.NOT ONE OF THEM.and at the 1st sign of impending monetization.....they are gonna leave in droves.look at the fundamentalsbefore you invest.oh, yeah.who the hell still uses jp morgan?you might as well use your local crackhead. they are probably more responsible with money.

jonny shitstorm
May 23, 2012

market low of 31.im gonna short 2day....suprise!i must say that even i will be somewhat suprised if i see minus 3o bucks today.but i reckon 1 more small short might be doable today.so will be betting lightly. and using profits.its called win/win.28 bucks anyone today?thats an awfull long way to go to 40.sell day today in euro n usa markets.should be interesting to say the least.now you see the advantages of short termism in a casino market.i dare say i will pick up more in 3 days than a traditional buy n hold strategy will yield over 3 years.you wanna wait for 3 years....you will be waiting forever with this piece of shit called bookyface or whatever.who gives a damn about running a company.we only see dollar bills n bank balances.and given time we will run this bookyface into the ground.easily manipulated.thats joe public. 

May 23, 2012


jonny shitstorm
May 26, 2012

hindsight. its always 20/20.now those idiots on marketwatch are calling facebook at.....wait for it.....14bucks a pop.thats 4 less than target....oh boy.and......they have also reported that this ipo is now up there with student debt as a major finger in the ass of the us economy.its in the top ten possible causes of another flash crash.i sense something sinister in this float which is not gonna come out for some time.by bet is that heads are gonna roll at j.p.another great product brought to you by.....the experts.

Dave Louthan
May 30, 2012

HAHAHAHAHAHA You're stupid. Who didn't see this coming? 

jonny shitstorm
Jun 02, 2012

oh dearclose at 27.that 18 bucks figure now looks very very real.there are serious money makin opps out there come monday.i screamed at everyone to sell this bag of shit.you cant give it away.im buyin energy sector on monday and gettin some fat ass bargains.psfor anyone who actually wants to make some cash get some real advice from someone using thier OWN money.bi-winning. and retired at 44.interloper67@yahoo.co.uki give the first one free. ha ha ha! 

Sep 01, 2012

OUCH! Hahahah. I did not invest in facebook, because to see any return at 100 times earnings, you'd have to wait a LONG time before you'd make any kind of real value. Ohh and having it'sshares at $18. I'm happy :D

Sep 05, 2012

I am honestly sorry for u.

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